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The Communicators

News/Business. People who shape the digital future.

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At&t 23, Roger 7, Us 7, Washington 5, Noll 4, Hausman 4, Jerry Hausman 4, Roger Noll 4, Paul Barbagallo 4, U.s. 3, Mckenzie 3, Fcc 3, United States 3, Johnson 2, Jerry 2, Stanford 2, Mit 2, Amy Klobuchar 1, Ladybird Johnson 1, The Massachusetts 1,
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  CSPAN    The Communicators    News/Business. People who  
   shape the digital future.  

    November 19, 2012
    8:00 - 8:29am EST  

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programming beginning saturday morning at 8 eastern through monday morning at 8 eastern. nonfiction books all weekend, every weekend right here on c-span2. >> here's what's coming up on c-span2. next, "the communicators" looks back at the breakup of at&t and how it reshaped the telecommunications market. then a former fcc chairman weighs in on the role super pac played in the 2012 election. after that, senator amy klobuchar talks about the role of women in the 113th congress, and later, we'll be live at the brookings institute for the u.s./china relationship. >> host: well, it was in 1982 that judge harold green issued a decision which led to the breakup of the at&t corporation, and that's our topic this week
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on "the communicators," the impact of that decision 30 years later on telecommunications. joining us in a round table discussion is professor roger noll of stanford, as well as professor jerry hausman of mit. both of these gentlemen were involved at various levels in the breakup or the decision to break up at&t. joining us here in our washington studio is paul barbagallo of bloomberg. professor noll, first of all, what was your role or activity during the breakup of at&t, and what led to that decision? >> guest: well, the roots of the antitrust case were in a presidential task force that was formed during the johnson administration in the late 1960s called the telecommunications policy task force. it had concluded that the telecommunications industry, at least the part of it that was in the federal jurisdiction, could be competitive and made recommendations both to the --
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mainly to the federal communications commission about how to cause that to happen. then when the nixon administration came along, the holdover staff in the antitrust division after watching for a couple of years decided to pursue antitrust rather than fcc regulation as the means to introduce competition. my role was that i was on both the telecommunications policy task force, and i was one of the outside economists advising the department of justice during the mid '70s when the case was actually being shaped. >> host: and professor hausman? >> guest: well, i didn't come in to the proceeding until, actually, right around 1982 and thereafter when the antitrust division decided to review, it was about three years later, the effect of the breakup. there was a report that was
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done, and i was an adviser to the government on the report and then was involved thereafter in the various changes and modifications to the consent decree of harold green a number of times. i put in reports -- [inaudible] >> host: professor hausman, were you supportive of the decision? >> guest: well, at the time i would say medium. i'd say looking back i'm quite supportive, but it was based on an incorrect theory, and in my view -- and i've written academic papers -- it probably cost consumers somewhere between $50 and $100 billion in payments that they should not have had to pay because the consent decree was based on the wrong theory. actually, although i quite like judge green, i once even had dinner with him in london, i really doubt that a federal judge no matter how well intentioned could really do a good job here. he was definitely in over his head.
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you know, he was not a telecommunications expert. but on the other hand, i've always thought that the federal communications commission probably wouldn't have gotten it done and done as well as it's turned out. so in that respect, yes, looking back i think things have worked out well, although the path this was a bit rocky. >> host: and, professor noll, were you a supporter at the time, and what do you think 30 years later? >> guest: well, i definitely was a supporter of the anti-trust case. i agree with jerry that some of the details that judge green imposed on the agreement, on the seat settlement were, had no real basis in either technology or economics, but on the other hand, i guess my standard isn't as high in the sense that when either a judge or a regulatory commission makes a generally pro-competitive decision, that's good news. because that's better than what they normally do. and so i believe that
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divestiture was an important event, one of many that have caused the american telecommunications system really to be the envy of the world. its performance is the best in the world and the reason it's most competitive. >> host: paul barbagallo. >> professor noll, you'd mentioned that there were some errors that judge green made. what were some of those errors? >> guest: well, the premise -- judge green believed something that at&t argued prior to at&t's change of heart to go along with the divestiture which was that the weak sister, the old bell system, was the local operate oing companies. and so in the divestiture there are, it's sort of silly at this time to go into the details because most of them are irrelevant today. but what he did, whenever there was a close call, the
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divestiture decision was something in favor of the local operating companies and against the interests of the long distance and equipment manufacturing part of at&t. and that was a, that was fundamentally a mistake because the premise of the case as it was developed and litigated was that it was the interstate park, long distance telecommunications and manufacturing, that could be competitive. and it was the local part that was a secure to knoply primarily because of the role of state regulation and an old supreme court decision which said the federal government could not assert jurisdiction over local regulation. so that i agree with jerry that the premise that judge green entered that somehow it was local service that needed to be protected was completely false. >> there's actually another problem as well can i'd like to say, and this shows what happens
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in court proceedings. the government brought the case against at&t, if i remember correctly, in 1976. and as i've pointed out in some of my academic papers, two things happened in 1976 which fundamentally changed the technology and was going to doom the bell system as it was at the time. that was computer switches, digital computer switches came in in 1976, and very much faster transmission equipment came in in 1976. so that was going to fundamentally change the industry. but because that's when the case was brought until 1995 when congress got rid of judge green, judge green did things based on that technology because that was the record of the case. and in telecommunications where things are changing so fast, and i brought my prop for today, my cell phone -- which has fundamentally changed the world -- he did his best, but he really couldn't take into account the changing technology because he didn't have the record evidence to do it.
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so that was yet another o problem. so i'm certainly agreeing with roger, you know, with respect to the local companies. but what i really saw the main problem was is the changing technology, and, for instance, france, you know, at the beginning of the '90s had a very good internet-based system, and the united states didn't really get that until five to ten years later because of the restrictions built into the consent decree. so it certainly had its pluses and minuses, but i think roger and i agree it's all worked out for the best now. >> and how has the breakup of a, the can, the d at&t affected the world we live in today? certainly we have what some would say a duopoly in network access, that is to say the big broadband pipe business. so quite a lot has changed since then. so, gentlemen, how has that breakup affected the market today? >> guest: well, i think that you really have to look at the
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technology. remember at the time of the breakup at&t was the largest corporation in the world. that at&t is gone. i mean, this is a company called at&t, but it's the old southwest bell operating company -- >> and bell south. >> guest: yeah, and bell south has bought out at&t. so what happened? well, sort of what roger pointed to. no other country besides the united states when they privatize and allow competition in telecommunications broke off the long distance company, because as of 1976 when you had the computers coming in, the old five-level bell system was not going to exist in the future. so the long distance companies are gone, mci is but a faint memory, and the old at&t is gone as well. so what has changed? well, there was a huge mistake made at the time of the breakup. mckenzie, which is much in the news the last few days but is a well known con sutting
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company -- consulting company, at the time of the breakup, at&t had to make a decision. should we keep our cellular inspection or let the box have it? so they asked mckenzie, and mckenzie predicted that as of the year 2000 there'd be a million users in the united states of cellular telephones. it was off by 99 million. there were actually about 100 million cellular subscribers in the year 2000. so that's fundamentally changed the world. and at&t, although they invented cell phones at bell labs, basically let up the ghost by letting go of cellular. so that's what i see, is long distance ceased to be a business, separate business, and you have cell phones. i would disagree with the lack of competition. i mean, there are always people in washington arguing everything. that's how they stay in business. but if you actually look, the latest government statistics are
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32% of the people don't even have land line telephones anymore, they use cell phones. and of people who have land line telephones, about 30% of them now have cable telephones. so there's competition out there, and in terms of the internet, you know, 4g is coming in, and there are various predictions about what's going to happen to internet capability. i'd be willing to predict in 10 or 15 years the majority of use of the internet is going to be over mobile phones and cell phones throughout the world. so one really has -- >> guest: if you actually expand that -- >> guest: -- with technology. excuse me? >> guest: if you expand that to wireless devices so you don't limit it to -- >> guest: oh, that's what i mean. [laughter] tablets, you name it, yeah, exactly. >> guest: yeah. i think the really important point about your question is that the mindset of the world well into the mid 1990s was that wire line access was stuff
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either on poles or buried in the ground, was the key to understanding competition in telecommunications. it's not -- the intriguing part of the wireless story is how very few people inside the industry. that's why the mckenzie report came out the way it did. it wasn't just judge green and the fcc who did not understand the potential of wireless. the the entire industry -- it was the entire industry except for a few visionaries who were sort of regarded as cookes. so what -- cooks. -- kooks. the hope that some people had that you could have a robustly-competitive fixed-line company where half a dozen companies are offering you telephone service over wires, either cables or couple wire pairs like the telephone
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company, that vision was mistaken. but wireless is really the future of access. and if we can solve the spectrum problem, the spectrum scarcity problem which the fcc is right now trying to solve, then the almost everything that historically we thought of as being the domain of wires and cables is actually going to be provided over the air. and that i have is robustly competitive. and so, you know, i -- do the at&t antitrust case have anything to do with this? it had manager to do with it, but as i say, its relevance today is not as great as it would have been had the original vision of everybody getting telecommunications services through things on telephone poles and buried in the ground. had that been right, there would have been a more important case. >> guest: and as you
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mentioned -- >> guest: i'd like to make two points along those lines. the first is, i completely agree with roger. when the telecom act that was passed by congress in '96 i think it was, the fcc set up regulations to try to bring this type of competition in. although by that time you could see, i think you could see that cellular was going to be very important. and somewhere probably in the hundreds of millions of dollars, probably much more than that, probably in the tens of billions of dollars was invested if what was called the competitive wire line business. and that just completely failed, you know? when the tech bust came in 2000, those companies dropped like flies, and the investment basically turned out to be worthless. so, you know, not only did a lot of people in the industry not see it, a lot of people were investing hundreds of millions or billions of dollars, and they didn't see it coming either. but i would like to actually bring up one thing that i don't think that the old at&t gets enough credit for, and this
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actually worries me. if you go back to the cell phone or the tablets or whatever, i see there are three enabling technologies for those, and they really have changed the world. the first was the transistor. where was the transistor developed? bell labs. the second was, um, cellular telephone. where was cellular telephone delivered? innovated? bell labs. and arguably the third is the radio technology that's used which is essentially cdma, and i'll give a small plug to mit. that was originally begun to be developed here for military uses and then professor jacobs moved to san diego, started qualcomm, and that's the technology used throughout the world. and what i see as a worry is most u.s. industry does not want to do fundamental research. we do have government labs, but i would say charitably they're less than a success. in terms of innovation. and so big innovations like
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transistors and cell cell phoneu know, only come very long time period. so it's hard to make predictions. but i don't think we ever do want to lose sight of many of the enabling technologies, pretty much everything we use today, you know, came from transistors in terms of electronics, and it's completely changed the world. so are we going to get innovations like that in the future? well, things remain to be seen. >> and, gentlemen, you mentioned wireless, the importance of wireless over the last 20 years. and a third of u.s. families have cut the cord. and last year as both of you know, we heard lots of references to ma bell as at&t proposed to acquire t-mobile. many had said that humpty dumpty was being put back together again. now we know that the doj moved to block that deal. so my question to you both is how many competitors do we need in the market to insure the public interest? >> guest: it's a, that's a really tough question because
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it's always specific to the circumstances of the market that you're studying. and it's particularly hard in telecommunications because the technology changes so rapidly. but, you know, the standard answer that most economists would give you is that somewhere around five firms that are robustly on the fringe of the technology who are efficient and innovative is the number that would sort of guarantee you a competitive outcome. and, indeed, most of the u.s -- nearly all of the u.s. has that many wireless carriers. so i'm not particularly worried. i think the main issue about the reliance on competition in wireless to keep us all amendment and innovative is the spectrum issue. the government still sits on an enormous quantity of spectrum that is either underutilized or not utilized at all, and
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sometime over the next few years we have to break that loose and create substantially more spectrum that's available to the private sector for use in wireless telephony and telecommunications. i think that will happen, although every time one makes a step, one finds resistance. and so, you know, my -- i think the single most important policy issue for us in the next few years is to make certain that the spectrum available for wireless telecommunication is adequate to support the growth of the industry that consumers and the firms are going to want to take us into. >> guest: so i think that the spectrum issue is of foremost importance, and i think there was a huge innovation made around 1994. myself and some other economists recommended to congress and the finishing cc that they -- fcc that they start to auction spectrum rather than give it away. one might remember that the johnson family, ladybird johnson
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was given all sorts of radio stations. her husband, of course, was powerful in congress, and that led to the family fortune. and even as late as the '90s during the clinton administration, a special deal was given to "the washington post" to get much cheaper spectrum than other people. so the government has always found it difficult to run this as a market. and now you have all sorts of government agencies or government bodies that have huge debt problems, you know? local governments are really having difficulty meeting their budgets. and they're sitting on enormous amounts of spectrum. and if they switched from analog technology which is, you know, the generation-old technology to digital technology, they could share that technology with private users like mobile phones and tablets and all, and everyone would be were better o. that's what economists want to see. but as roger said, you know, every time we get close politics
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seems to enter the fray again. so i'm hopeful but certainly can't guarantee that this problem's going to get solved. >> host: jerry hausman -- >> guest: i think we have to be patient. but the idea of a spectrum auction first came about in the 1950s. it took us only 40 years to get there. [laughter] >> host: roger noll is currently at stanford university. he is the director of the stanford institute for economic policy research. jerry hausman is an economics professor at the massachusetts institute of technology. we are talking about the 30th anniversary of the decision to break up at&t. gentlemen, we'll tart with you, professor house -- we'll start with you, professor hausman, what's the relationship between the 1982 decision by harold green, and is there a relationship between that and the 1996 telecommunications act? >> guest: yes. by 1996 it was egg recognized
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that -- well recognized that things had gotten out of hand and, you know, the technology had changed. so in 1996 a deal was made in large part, and that was if competition was introduced and became sufficient, then a lot of the restrictions of the consent decree would be illuminated by long distance. but even by 1996 i actually made a prediction in 1996 that within ten years the old at&t would be gone. it turned out i was off by one week. it took ten years and one week for the old at&t to be gone. so it was certainly an improvement, and it had its heart in the right place, the telecom act, but again, it was somewhat behind technology. as i said, the regulations were set to favor the new entrants, the new entrants came in, they invested a lot of money, they all failed, and now it's just completely irrelevant. so 15 years later, 17 years late, it's pretty much completely irrelevant, but that's, you know, due to the march of technology more than
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anything else, at least in my view. >> host: professor noll? >> guest: well, i basically agree with the assessment. at the time the act was passed, i thought it was ridiculously complex. it was not a good piece of legislation. we complain about poor judge green with his lack of sophistication and some of the decisions he made in divestiture. well, i'll take judge green over congress any day. [laughter] the act is really not very well crafted. but nonetheless, the beauty of telecommunications is nobody has -- not the fcc, not the congress, not the courts has ever made a bad enough decision to stop the march of technology, and the places that it's taking us. and so retrospect i havely -- retrospectively the 1996 act, itself singlemost negative feature was that it caused an enormous amount of resources to be devoted to regulatory strategy as the means to gain
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the competitive advantage in the industry. it was not sufficiently deregulatory enough and not sufficiently pro-competitive enough. and, but because wireless technology in particular quickly mooted it, it's not doing any significant amount of damage now. gls so is it, is it possible to regulate telecommunications, and if so, should it be done? >> guest: well, i think that it's certainly possible to regulate it. we have 100 years of proof that it's possible to regulate it. the problem is that competition, if it's feasible, is always a preferred strategy to regulation. regulation makes enormous sense if technology has dealt you a hand that says in this industry is not going to be competitive, that you can't hope to have more than one or two firms in it, and those firms dwiive the nature of the market in which they're
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operating, they're going to have an enormous amount of power and cannot only extract an enormous amount of money from their customer ors, but they can control technology nefariously as opposed to letting the technology blossom. so regulation is something to be done when the market conditions require it, but to be done reluctantly and to be done with as much restraint as is can consistent with the policy objective. i think the main criticism all of us who have studied this industry over time has been is that even when the fcc was allowing competition to increase, was hiving off components of the industry in
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>> guest: there is relatively little need for regulatory supervision of what goes on in the industry. as i said several years ago, at this point i think except for managing the spectrum and running spectrum auctions, the fcc should be basically abolished. i see no functional use for it today. >> host: paul barbagallo. last question. >> so -- >> guest: i'd like to, i'd like to answer that as well. >> host: go ahead. >> guest: i would agree with roger. i think the fcc should declare victory in apart from the spectrum, exit the field because
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we are very competitive. but i would say they're the only group of people i can see who would be helped by reregulation or the segment of washington lawyers and lobbyists who deal in regulation, and that's just rent extraction. so we've won. competition has won. roger and i have both always been in favor of that, as most economists are. so i think it would be absolutely absurd to think of reregulation. >> host: professor hausman, who's the biggest benefactor of the breakup of at&t? >> guest: consumers. when i see my students walking around campus, i always think since they always have cell phones and they're either listening to music or talking, i talk, therefore, i am. so anybody who picks up a cell phone, any moment of the day and uses it to access the internet, listen to pandora, listen to music, call people anywhere in the world, use skype, etc., and i mean tablets as well, they're the people, consumers, who have really benefited the most.
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and, obvious, that's what competition's supposed to do. >> host: and roger noll? >> guest: i agree that consumers are the beneficiaries, but you also have to add in the firms that didn't exist 10-15 years ago that are now among the leading corporations in the world, that is to say people who provide the software and internet-based services that are only made possible by high-speed digital technology; google, facebook, whatever. those also are the big beneficiaries. >> host: roger noll at stanford, jerry hausman at mit and paul barbagallo of bloomberg. gentlemen, thank you all very much. >> coming up next, a look at the influence of superpacs in the 2012 election and beyond. then newly-reelected senator amy globe char talks about the role she and her female colleagues will play in the new 1234r59. >> and later, a live discussion on china's new relationship and how it may impact relations with
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the u.s. also today the american enterprise institute hosts a discussion on immigration policy featuring the views of self-identified conservatives. representatives from groups including the texas immigration solution and southern baptist convention will talk about the issue from the perspective of politics, law enforcement, people of faith and the business community and whether a new federal policy can be agreed to in washington. live coverage of the event begins later this morning at 10 a.m. eastern over on c-span. >> the average new facebook user is in india or indonesia or brazil right now. you know, they're using a mobile phone primarily to access facebook because they haven't had access to a broadband laptop or pc. and in a lot of cases there isn't a infrastructure medium that you have in the united states. so a lot of americans will say, oh, facebook is great for
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gossipping and seeing what my friends are eating for lunch. but if you were to talk to somebody, um, in the middle east maybe, you'd hear a different story which is that facebook was providing access to news, to people that had unique access to information that they weren't able to get at otherwise, and you get a much more sort of meaty story about what facebook means to them. >> more from facebook engineer chris cox with an insider's view of the company thanksgiving day on c-span, just after 12:30 p.m. eastern. at 2, chief justice josh roberts and -- john roberts and labeling justices liberal and conservative. and later, space pioneers and nasa officials pay homage to the first man to work on the moon, neil armstrong, just before 11. >> now a look at the role superpacs played in the 2012 election. speakers include former federal election commission chairman trevor potter who said we're just beginning to